How, and why, to put your home in a trust

When you purchase and own a home, your name is on the title to the property, indicating ownership. But you can transfer ownership of your residence to another person or entity in the form of a real estate trust.

Why would you want to put property in a trust? Doing so can make it easier to manage and distribute your assets — including your home — after your death. It can have legal and tax benefits, too. Learn more about how a trust works, different types to consider, the pros and cons of putting your home in trust and more.

What is a trust?

A real estate trust is a legal arrangement in which the owner of a home, known as the “grantor” or “settlor,” transfers ownership of the property to another entity or individual, known as the “trustee.” The trustee holds and manages the property for the benefit of the grantor and any named beneficiaries of the grantor’s estate.

“Putting your home in a trust simply means transferring ownership of your home into a trust you have created with a trust agreement,” says Salt Lake City–based real estate and estate planning attorney Justin Cutler. “You transfer your home to the trust by signing a deed that names the trustee as the new owner of the property. The deed then needs to be recorded with the local county recording office. Once recorded, the trustee is now ‘on title’ as the legal owner of the property.”

Typically, the original owner of the home names him- or herself as the trustee so that they can maintain control of the property. Or, the original owner can name someone else as the trustee, such as a relative, friend or attorney, which can be helpful in case the original owner passes away. Trustees are frequently adult children of the homeowner, who will inherit the property upon the homeowner’s death.

“This is often done to ensure that future generations will benefit from the home,” says Rob Fricker, an estate planning attorney in Milwaukee.

Revocable trusts vs. irrevocable trusts

Trusts are often used for tax, estate planning or asset protection purposes, as — depending on the type of trust — the property can be protected from creditors and can pass directly to the beneficiaries without going through probate court, says Philadelphia-based attorney Min Hwan Ahn. There are two primary types of trusts that pertain to real estate: revocable and irrevocable.

Also often called a living trust, a revocable trust can be amended or dissolved at any time by the grantor/creator of the trust. “A revocable trust allows the grantor to retain control over the property and make changes to the trust during their lifetime,” says Ahn. “The grantor retains the right to modify or dissolve the trust. They can act as the trustee and manage the property themselves or appoint someone else to do so.”

A revocable/living trust is similar to a will, because it stipulates the original homeowner’s wishes upon death. When the grantor passes away, the property in the revocable trust is distributed to the grantor’s beneficiaries, per the terms of the trust agreement.

An irrevocable trust, as the name implies, is more permanent. It cannot be dissolved or changed by the grantor after it has been created, unless the beneficiaries grant consent.

Other types of trusts

Revocable and irrevocable are the two most popular trusts used for real estate purposes, says Ahn, but there are others. These include:

• Charitable trusts, which are used to provide for a charitable organization or cause, with the property passing to the charity upon the grantor’s death.
• Special needs trusts, often used by and for individuals with disabilities to ensure that their assets and property are protected and used for their benefit.
• Life insurance trusts, created to manage life insurance policies for estate planning purposes, ensuring that death benefits are distributed based on the grantor’s wishes.

Pros and cons of putting your house in a trust

Benefits

Putting your home in trust can provide several perks that make this method of ownership transfer worthwhile.

• Estate planning: The main benefit of putting your home in a trust is that it bypasses probate court after the original homeowner (grantor) dies. That means ownership of the home can be transferred more quickly, and more privately. “If a homeowner puts their home in a trust, then upon their death, the successor trustee will have the legal authority to sell the home without having to file in probate court,” Cutler says. “Probate court can cost thousands of dollars and may take more than a year to complete, so putting your home in a trust is a great way to avoid all of that.”
• Asset protection: Assets within an irrevocable trust are protected from lawsuits and creditors. “The property in the trust is no longer considered the homeowner’s personal property. It’s instead held for the benefit of the trust’s beneficiaries,” says Ahn.
• Tax savings: Trusts can offer tax advantages in certain circumstances. For example, an irrevocable trust may be eligible for a stepped-up tax basis upon the grantor’s death, possibly reducing estate taxes and capital gains taxes when the property is sold. “A revocable trust does not have any tax benefits, since it is generally not a separate entity with its own tax ID number,” says Cutler.
• Continuity of ownership: Trusts can also ensure that a property is passed down to future generations without the need for a formal transfer of ownership. “This can help preserve family assets and maintain ownership continuity,” Ahn says.

Disadvantages

But putting your home in a trust has its downsides, too.

• Legal fees: It can be costly to establish and maintain a trust, because it typically involves legal fees and ongoing administration costs. “Upfront costs can range from $500 for a do-it-yourself option to several thousands of dollars to hire an attorney,” Cutler says. “Revocable trusts do not require annual maintenance or renewal fees once the home is in the trust. But for more complex irrevocable trusts that require a separate tax ID number, you may need to make annual tax filings for the trust.”
• Loss of control: Trusts are often complex legal arrangements that require a detailed understanding of the law and how trusts work. “This can make it difficult for the average person to manage their own trust,” says Ahn. You may need ongoing legal advice.
• Permanence: In the case of an irrevocable trust, the terms cannot be amended or revoked once it is established. “Also, depending on the terms of the trust, the homeowner may have limitations on their ability to use the property, such as restrictions on renting it out or making improvements to it,” Ahn says.

How to put your home in a trust

Whichever type of trust you choose, creating a real estate trust is best done with the help of an attorney. Here’s a breakdown of the basic steps involved:

1. Choose a trustee (yourself or another individual, such as a trusted relative, friend or attorney).
2. Decide on the terms of the trust, and create and sign a trust agreement.
3. Sign a deed that names a specific trustee as the new owner of the property.
4. Send the deed to the county recorder’s office to be recorded, You will likely have to pay a recording fee. Once recorded, the property is now in the trust and is legally binding.

Bottom line

Putting your property in a trust can be a smart way to ensure smooth transfer of ownership to your beneficiaries after your death, safeguard the property from creditors and lawsuits and avoid probate. But it can be complicated — and expensive. Consult closely with an attorney on your options, and carefully consider whom you might want to name as trustee before committing to a trust.